Faculty Symposium Showcases Breadth of Research

Faculty present their latest research on the human tendency toward dishonesty, the use of crowdsourcing to solve major scientific problems, and the impact of private equity investments.

by Carmen Nobel

An internal event held each May, the annual Faculty Research Symposium affords the opportunity for a few Harvard Business School faculty to share their latest research with an audience of doctoral students, HBS staff, and other professors. The goal is to showcase the depth and breadth of research going on at the School.

This year the presentation topics included the human tendency toward dishonesty, the use of crowdsourcing to solve major scientific problems, and the impact of private equity investments.

Understanding Dishonesty

Francesca Gino began her presentation with a sobering list of statistics showcasing the combined cost of white collar crime. Accounting scandals: $40 billion per year. Insurance fraud: $80 billion. "Wardrobing" (purchasing a new outfit, wearing it for a night on the town, and then returning it): $8.9 billion. Intellectual property theft: $300 billion. Employee theft and fraud: $600 billion. "The costs to business and society are striking," she said.

Gino, an associate professor and behavioral economist at HBS, studies ethical decision making and the psychology of moral behavior in the workplace. In her presentation, Understanding Dishonesty and Its Organizational Implications, she discussed several laboratory and field experiments meant to uncover factors that lead people to make unethical choices.

"We seem to face this type of conflict at any given moment between the angel and the devil, and there are all kinds of forces that may make the devil more salient and push us toward the wrong path," she said. "The forces that tend to lead us down the wrong path are quite subtle… we're often aware that we're cheating but aren't aware of the forces that make us do that."

For instance, one series of experiments found a direct link between creativity and unethical behavior. According to the findings, inducing creativity in employees also inadvertently induces unethical behavior—a sobering thought in a corporate culture that champions out-of-the-box thinking.

But her research also has shown how organizations can induce ethical behavior in their employees. For example, another series of experiments showed that moving the signature line from the end to the beginning of a self-reported form leads to an increase in truthfulness in the answers. A field experiment at an auto insurance company showed that its customers reported their mileage more truthfully when customers signed their annual report form before filling it out, she said. Now the British government is considering the tactic for its tax forms.

The Power Of Crowdsourcing

Since the turn of millennium, more and more organizations have started hosting contests to find solutions to problems ranging from automotive design to cleaning up oil spills. Karim R. Lakhani has spent the past five years working with NASA, Harvard Medical School, and TopCoder to determine the most effective ways to solve innovation problems through crowdsourcing.

"We're trying to see how this new form of organizing people is disrupting business," said Lakhani, the Lumry Family Associate Professor of Business Administration at HBS and the Principal Investigator of the Harvard-NASA Tournament Lab at the Institute for Quantitative Social Science.

“We're trying to see how this new form of organizing people is disrupting business”

He shared some of the team's startling findings in his presentation, Crowdsourcing to Stimulate Innovation: Using Contests and Communities to Solve Innovation Problems. In short, he said, hosting a contest is a very effective way to garner solutions to major problems. It's also relatively inexpensive, he said, citing cases in which a $30,000 prize garnered better solutions in a matter of weeks than major contractors (with multimillion-dollar contracts) delivered in a year. The challenge for the host lies in figuring out how best to motivate contest entrants, and the research team has focused on these motivating factors.

One important finding: Independent innovators are more likely to enter a contest if they don't know who the other entrants are. While hosts might think that access to the ideas of other competitors might spur new ideas and new entries, the open system is actually a deterrent. "If I'm participating in a contest and I see Mike there, I'll walk away because I'll feel like there's no way my solution will beat Mike's," Lakhani explained.

The researchers have also found that organizations will garner the best solutions from innovators if they let them choose whether to work as solo competitors or whether to work on a team. "Self-selection is the main driver of effort gains in crowdsourcing," Lakhani said.

Conflicting Views About Private Equity

Among those who work in the financial industry and those who regulate it, there are strong but conflicting viewpoints about the impact of private equity buyouts of public firms, especially in the wake of the recent global financial crisis. Some critics focus on the large-scale layoffs and service disruptions that often follow a buyout. Others maintain that PE fund managers are better at managing firms and making them more efficient than many corporate executives.

Josh Lerner, the Jacob H. Schiff professor of investment banking at HBS, has spent much of the past decade digging into the pros and cons of private equity. He dug into the precarious topic in his presentation, Private Equity: Financial Capital, Real Consequences?

In one study of 495 leveraged-buyout transactions, Lerner and colleagues looked into whether such transactions squelched innovation and ignored long-term grown. They found that patents granted to firms involved in private equity transactions were actually more cited than patents granted to other firms.

Citing a study that tracked 3,200 target firms over 15 years, Lerner explained that the net employment effect of private equity buyouts is actually pretty modest at less than 1 percent of original employment—but that doesn't mean they don't dramatically shake up thousands of lives.

"The one thing that's clear is that there's a lot more churn after the private equity guys come in," Lerner said. "There are a lot more jobs being created and a lot more being destroyed."

—Additional reporting by Anna Secino.

About the Author

Carmen Nobel is the senior editor of Harvard Business School Working Knowledge.

Kapil Kumar Sopory

Company Secretary, SMEC(India) Private Limited

Our preachers, teachers, elders, printed material on morality related subjects teach us, time and again that ' Honesty is the best policy'. Alas! we seem to have degenerated having added 'Dis' before this advisory.
This reseach on the level and extent of unethical actions leading to huge losses is mind boggling. Fraudsters adopt novel means to dupe legal machinery and, in addition to what comes to light, there is much which remains hidden and the sight of which is lost with the passage of time.
Governments and corporations have huge ethics manuals which they are proud to have issued. But, for strict implementation, there is no truly result oriented system. Even when detected, it takes ages in courts ( India is a glaring example) before something happens.
JUSTICE DELAYED IS JUSTICE DENIED !!!
We lament but let's unite for finding lasting remedies...

Ravindran Kanningat

Faculty - Business Studies, Edgewater College

Is dishonesty is a courage to display one's smartness to get quick rich over the rest who otherwise are honest and lead a mediocre life? There is a general perception in people that the honest lead an average life and are risk avoider. Is there any co-relation between this two. I would appreciate response.

soma

manager, bank

In todays cut throat competition where only the fittest can survive, people are willing to compromise with their ethics.
Honest people are either out of the competition or turn dishonest to be in the competition. Because there is thin line between the two and organizations do not acknowledge honesty , they acknowledge or appreciate only achievers.